Tag Archives: McKinsey

The McKinsey Global Institute (MGI) is a pretty high falutin’ outfit. It’s the business and economics research arm of McKinsey & Company. Not focused so much on middle-market HR folks, it publishes a wealth of well-researched papers that focus on the evolving global economy. Highly scientific in their approach and academic in their tone, they publish some great content. It’s tough slogging from an average professional’s reading perspective, but if you hang in, it’s worth it. It’s McKinsey, for Pete’s sake.

A June 2017 publication caught my eye: Artificial Intelligence, The Next Digital Frontier? is a long (80 pages) read, but a fascinating read. And it takes a deep dive into the investment in artificial intelligence (AI), how it is being deployed, and its potential to disrupt organizations and business. I like MGI research because it isn’t sponsored by any other institution, which fits MGI’s mission which is “to help business and policy leaders understand the forces transforming the global economy identify strategic imperatives, and prepare for the next wave of growth.”

The brief of this “discussion paper” includes:

AI investment is growing fast, dominated by digital giants such as Google and Baidu.

AI adoption outside the tech sector is at an early, experimental stage.

Adoption patterns show a growing gap between early adopters and others.

Early evidence suggests that AI can deliver real value to serious adopters and can be a powerful force for disruption.

Businesses, developers and governments need to act now to realize AI’s full potential.

Appendix A: Five case studies

Retail

Electric utility

Manufacturing

Health care

Education

Appendix B: Technical appendix

I’m personally fascinated that in picking 5 sectors, Education made the grade. But truly, if ever there was a sector ripe for disruption, it’s the Education sector.

The following is one of the very interesting graphs/charts included in the paper:

It’s fascinating to see the level of current AI adoption compared with the AI demand trajectory. Of particular interest is MGI’s opinion that “variation of adoption within industries will be even larger than between industries.” That means, I think, that the AI divide – the haves and have nots – won’t be so much defined by industry as by early adoption status and investment. I can see a future bifurcated by this variable. This means that every organization, regardless of industry, has the ability now to decide to on the side of early adoption and industry disruption.

This is a fascinating paper. You might not read every word, but the whole AI discussion will be framed for you in a way that will allow you to participate – and even lead – in a meaningful way.

Last week I introduced you to Mary Meeker’s Internet Trends 2015 report which I suggested should be required reading for HR. This report, which really should have been titled, The Internet in 2015 Is All About HR, shared important data points and analysis relating to basic HR functions and the impact the internet is having on basic organization functions.

This week, I’d like to point out the McKinsey Global Institute’s new report, A Labor Market That Works: Connecting Talent With Opportunity in the Digital Age. Even if you only the read the Executive Summary, this is worth your time. It’s full of employment-related data from the major global economies as it links those statistics to the growing impact of online talent platforms – and their potential, in the gig economy, to transform both the employer/employee relationship and how workers find work and build economic opportunity. It’s important information and their analysis of (mostly) Linkedin data are arresting.

The report is organized into three broad topics: Better, fast matching; Economic impact; and Talent management for companies. All three topics could sustain a full report on their own, but I’ll focus on the second: Economic impact. The gig economy powered by online talent platforms, by their analysis, will be contributing $2.7 trillion to global GDP by 2025. They do the math by analyzing three channels of impact:

Increasing labor force participation and hours worked among part-time employees

Reducing unemployment

Raising labor productivity

This adds 72 million workers to the global workforce and adds a full 2% to the projected world GDP for 2025. The largest impact, $1.3 trillion, come from great labor participation and more hours worked. Shortening job searches and creating matches that would not have been otherwise will lower unemployment rates, creating the second biggest impact at $805 billion. The third biggest impact is the increase of productivity through higher quality job matches and a shift to formal employment from informal grows global GDP by $625 billion.

But their analysis also shows that the positive impact of the gig economy is greater than dollars as 540 million people (nearly 70% more than the current population of the United States) will benefit from these new ways of connecting workers to work. That’s big, right? And that’s only 10 years from now.

As an HR leader, are you concerned about the talent pipeline? Having trouble filling your current open positions? Wondering if the use of internet based solutions will produce better results? The real question may be, “how fast can I start implementing online talent platform solutions in order to connect workers to the work we have available?”

The report continues to make the economic case for the positive impact of internet enabled platforms by predicting their use could reduce public spending on labor market programs, allocating as much as $89 billion/year from unemployment benefits savings to education and vocational training programs to ensure a skilled talent pipeline. McKinsey also predicts that online talent platforms may increase innovation, strengthen productivity and generally “improve the development of human capital across economies.”

This is Big Data at its best: boiled down to useful constructs. The full report is 100 pages. I recommend that you download it and take it section by section. I think you’ll be glad you did.

You’ve probably heard that organizations with a focus on diversity have stronger organizational cultures – they have happier and more productive employees, and are more socially ethical than other organizations. You might have also heard that organizations with a focus on diversity perform better financially than organizations that do not invest energy in diversity programs, or in fostering a diverse workplace. Why, exactly, is this the case though? McKinsey & Company’s 2014 report, “Why Diversity Matters” answers just this, looking at the reasons why organizations with a focus on diversity simply do better, financially and otherwise, shining some data driven light on, well, why diversity matters.

McKinsey’s report examines the relationship between the level of diversity (defined as a greater share of women and a more mixed ethnic/racial composition in the leadership of large companies) and company financial performance (measured as average EBIT 2010–2013). Their research is based on leadership demographics and financial data from hundreds of organizations and thousands of executives in the United Kingdom, Canada, Latin America, and the U.S, allowing for “…results that are statistically significant and…. the first [analysis] that we are aware of that measures how much the relationship between diversity and performance is worth in terms of increased profitability.” Analysis of the data collected from 366 companies disclosed a statistically significant connection between diversity and financial performance, with organizations in the top quartile for gender diversity 15% more likely to have financial returns above their national industry median and organizations in the top quartile for racial/ethnic diversity 30% more likely to have financial returns above their national industry median. This pattern also held true in reverse, with organizations in the bottom quartile for gender or racial/ethnic diversity more likely to fall below the performance of the top-quartile companies and organizations in the bottom quartile for both gender and ethnicity underperforming (not just “not performing” but lagging) in comparison with the other three quartiles.

McKinsey’s research also noted a positive relationship between financial performance and diversity in leadership, although this varied by country, industry, and type of diversity (gender or ethnicity). The U.S, for example shows no statistically significant correlation between gender diversity and performance until women make up at least 22% of a senior executive team. Even once that point is reached, the relationship observed for US companies is still of relatively low impact: for every 10% increase in gender diversity there is an increase of 0.3% in EBIT margin. The UK boasts a much more significant relationship between gender diversity and performance, experiencing ten times the impact for their focus on gender diversity than U.S organizations (even after they’ve reached the 22% tipping point). The correlated benefit is an increase of 3.5% in EBIT for every 10% increase in gender diversity in the senior executive team (and 1.4% for the board). It is also interesting to note that while U.S. companies have made efforts in recent years to up the number of women in executive positions (progress is limited but measurable), the data show that less attention has been given to the attainment of racial and ethnic diversity.

Above-median financial performance was achieved by a higher percentage of companies in the top quartile than the bottom quartile for ethnic diversity in all the countries and regions McKinsey investigated. The message that diverse organizations perform better is clear, but as we asked earlier, why? McKinsey & Company offers the following supported hypotheses that diversity helps to:

Win the war for talent

Strengthen customer orientation

Increase employee satisfaction

Improve decision making

Enhance an organization’s image

In the war for talent, diversity increases not only an organization’s sourcing pool but attracts talent that has shown to place significant value on diversity (such as Millenials). Additionally, because groups targeted by diversity efforts are usually underrepresented, they are often great sources of desirable talent. McKinsey & Company’s report cites a recent study that found, on average, lesbian, gay, bisexual, and transgender (LGBT) recruits tend to be more highly skilled and more likely to have advanced degrees. By focusing on diversity, organizations align themselves with an increasingly heterogeneous customer base, enabling stronger bonds with customers. Workplace diversity increases employee satisfaction and fosters positive attitudes and behaviors and creates better decision making through combining diverse groups of thinkers. These organizational aspects that diversity bolsters ultimately make up the foundation for organizations that perform better financially.

As the workforce becomes increasingly global, diversity is only going to increase in importance. Regulators in some European countries have already introduced diversity targets for boards, such as those set out in the UK Equality Act 2010. Despite the importance of diversity, many companies’ approaches are still very one-dimensional, opting for just a single diversity program to cover all aspects of diversity: racial/ethnic, gender, and sexual orientation. This may be why, on a large scale, companies often make progress in only one area of diversity.

McKinsey & Company’s research suggests that this one-dimensional approach to diversity results in a focus on a particular category rather than the opportunity as a whole. They advise that organizations should instead adopt tailored programs and make more targeted efforts within specific areas of diversity, believing that these will be necessary to make measurable progress and ensure relevance to business goals.

It does seem odd that we’re still making a statistical case for what everyone knows to be true: diverse thought, experience, outlooks and cultures make for stronger solutions, more rapid innovation, more engaged employees and customers, and better all around performance. I guess more evidence doesn’t hurt.